Pending Long GBP/JPY

2017-06-13 15:18:00

Nick Cawley, Senior Strategist

Nick Cawley, Analyst, June 13, 2017

My Picks: Pending Long GBP/JPY

Expertise: Fundamental/Technical Analysis

Average Time Frame of Trades: One week to several weeks

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GBP bulls should look at GBP/JPY as a potential long position despite the recent weakness in the pair. The British Pound has been under downward pressure in the last few days after the UK General election threw up a shock result with the ruling Conservative party losing its narrow majority in the House of Commons and instead having to forge an alliance with the Democratic Unionist Party (DUP) to continue ruling the country. Sentiment however has now turned slightly in favour of Sterling with the market expecting a slightly ‘softer-Brexit’ a positive for the UK currency.

Recent hard UK data also has given the GBP a boost with rising inflation - +2.9% vs a prior month’s 2.7% - likely to bring forward monetary tightening, although this may be many months in the future as Brexit negotiations continue to stay the Bank of England’s hand.

From a technical stance, the latest stochastics show the pair nearing the 20 level, normally a sign that the market is oversold. A look at the momentum indicator also highlights that while the pair remain in a downtrend, levels are becoming stretched at -1.910. In the last six weeks the momentum indicator has ranged between – 3.940 (May 29) and +8.314 (April28).

In addition, the latest moving averages point to potential downside although the pair are nearing the 100-day ma and need to trade above 141.20 – currently at 139.950at the time of writing - to signal a possible upside shift.

GBPJPY: Daily Timeframe (December 24, 2016 – June 13, 2017)